First of all i want to make clear that i believe that name Tsaesci in this context should be taken as those who have reached Secret Tower, I (Tsaescence), Dreugh were first so they count as Tsaesci. Vehk would count as Tsaesci. But all in all this myth is similar to Tsaesci-people as 36 lessos of Vivec was to Nerevarine. Guide of how to find Secret Tower. When i talk about those of Tsaesci who wrote this myth i use term Tsaesci-Gods, those of Tsaesci-people who have reached Secret tower.
Word Aedra will pop out rather constantly, but i must underline the idea that it's not Aedra of Nine Divines or Altmer beliefs or any religion of Tamriel. These are Tsaesci, they see things is much large perspective stretching back many Kalpas all they way to Dreugh. Yet i choosed to give Biter name Aedra as they play that role given in mannish and merrish myths yet without burden of mannish and Merrish religions which have alerted their doings and role. Biters essentialy are Aedras past many kalpas, maybe even the first Aedras from first kalpa. Keep this in mind and remain constantly vigilant.
As for texts which i've mostly studied is pretty much everything which Vivec has wrote but naturally my 5-6 years of lore study have (hopefully) given me rather large knowledge base from where to draw inspiration and such. but i have found lots of similarities of texts written for Morrowind, and espacely those written by Vehk. I apologize for not providing proper links and quotes as would be proper to back up my conclusions, but i'm not much of a writer. However about 50% if even more of my conclusions bases on this book:
http://www.imperial-library.info/content/vehks-teaching
Now to matter at hand, the text itself.
"There was the Striking, and the Egg was split into twelve worlds, one for each serpent who had a name, and the names of the serpents were alive and coiled into themselves and became more eggs, for names are self-maters, and the Naming went and went. According to the calculations, the random sequence learned very cunningly that fragmentation reserved itself to the left eye. Variation realms were the evidence needed."
Striking means static-change, serpent trying to bite it's tail never reaching it. Or as in Yokudan myth serpent eating itself time after time again. Original entity turned into 12 worlds. One's which i'd call Original Et'ada. And they made more Et'ada. And they made more Et'ada. Lorkhan understood that this was preset pattern, this static change. So in essence what we have explained here is kalpic structure of very first events of Dawn. Interesting thing is that there is no Padhome, and no Sithis. Just one entity which becomes 12 , which becomes more.
"There was the Biting, which broke the twelve worlds and their name-eggs, and the Biters chewed new names of the lesser serpents until soon death was known to the smallest and your alphabets disappeared but ours did not. The state of rest became worthy of blame, however segmented, so heat was wasted across the right eye. And in mercy we gave to you language that was dead yet walking if you used it, which you did, though transient food-forms became problematic."
Some Gods, Aedra, choosed to overthrow others, battle of Aurbical level ensued killing many of Original Et'ada and their children, alphabets seems to point out into 'knowing what one is', so now some of lesser Et'ada didn't have identity which Aedra had taken from them. Tsaesci seems to state that their "own" Et'ada survived this. It seems that Tsaesci gave language to those Et'ada who's identity had been lost. Now keep in mind that these Et'ada later on becomes Mortals of Nirn. I think it's important to point out that Tsaesci themselves uses Kiai, Thu'um of their own. And when one keeps in mind what Thu'um is, one can understand why Language and Gods seems to overlap in Tsaesci mythology so strongly.
One should keep in mind that Nirn haven't been made just yet, these things happens in those 12 worlds and what ever remains of them.
"There was the Slithering, when scales were now name-bites that moved freely, and the dead language speakers bled out into non-talk, which is egg-naming inverted, which slides into the shedding of more dead, which cannot be redeemed in the hunger quadrant, and now we could no more be detached, for the twelve-to-one only talked unsense except for us, who ate your slithering during trumpet season as the..."
Scales and name-bites seems to point out that Original Biters made their own Children, which weren't restricted by pattern. This is believe tells how Aedra and their children overtook most pantheons as we are seeing in current Tamrielic religions. Whole start of this Paragraph is bit difficult to understand yet alone to write my own (mis-)interpretantion, but i'll try. So what this bit explains (earlier paragraph) is that Lorkhan and his followers wanted to break free from Striking, static-change. They wanted to be free and toi have their own playing yard. However as in all myths Lorkhan secretly wanted to have whole Striking of his own, he wanted it all. This should be pretty familiar to ones who have studied words of Vehk. As for hunger-quadrant, creations of Aedra (or Tsaesci) couldn't be eaten by Never-stasis because process had been changed. Only way to explain it would be that "programming language" has been changed and new software is needed to read it. One might look at Yokudan creation myth where Satak ate itself and shed itself anew just to eat it self again kalpa after kalpa, after kalpa and Et'ada tried to figure out ways to evade this. Tsaesci myth largely is similar to Yokudans for these parts, even when Tsaesci doesn't see Nirn as prison similar to Yokudan.
"...Biters poisoned the random sequence until we came and made of it music, as that is the only thing that might save the prey who wore all shapes of confusion not described yet in the calculations. Some of us discovered honor, though more found the idea of moderation, which turned into the identical selection process and we created our eating that way"
Here we are at Convention. Aedra kills Lorkhan. Lorkhan often is seen as Trickster and Tsaesci seems to nod at same direction by saying that random sequence wore all shapes of confusion. I believe that at this point of time Aedra understood that what Lorkhan had made was just small version of never-stasis where kalpic strcture remains. Calculation means Lorkhan's plan to make his own universe where he would be the Dreamer, this is the thing i believe made Aedra to kill him. And Tsaesci claims that they save Lorkhan and made him Moons in Sky. In end 'some of us discovered honor' most likely hints at CHIM, but i'm far from certain with this, basically it's just a hunch without anything solid to back it up. While 'identical selection process' most likely hints to Strinking, exact Egg-cracking of old Argonia as Vehk states. Could this also mean Mantling? Maybe, similarities are there. As reader might have noticed that there are lots of talk about dead.
"There was the Shedding, who inflated into a sphere of edible communications and this is how the sequence began to find proportion again. The name-eggs that had survived without also turning into calculation powder settled and became dreugh-waters, which was the first thing to finally encompass the risks attempted by the Striking. Stomach signals wrote a complex document of conditions. This was the variation map, called dai."
Shedding in Yokudan myth stands for Satak to shed it's skin anew when it bit it's heart and died this symbolizes start of new Kalpa. Now we have physical Nirn and convention has been made and timeline has stabilized. Notice however that they speak of Dreugh which in our current Tamrielic timeline are held as creatures of past Kalpa. Based on Tsaesci myth they were first ones to understand what Lorkhan's goal was. What stomach signals stands for? I think is Daedra, Veloth basically learned CHIM from Anticipations (three jolly good Daedras), however i'm stretching my imagination with this. Variation map, dai, means Mnemoli. I shall explain bit more in next paragraph.
"The Reaching came, where movements of dai progressed across islands of edible communication and food-forms could stockpile. One Reaching unravelled but the Coiling at its belly made a virtual star line, which made eating lucid. We slid to the imago and Named it cunningly. The waters obeyed and dead names took up their place in the random sequence. The first serpents returned to us in transmissions that answered the alphabet-virus which we then consumed at last. By the relative dai, we egg-named it and swallowed all source-information to preserve the virus and became immortal thereby. Past the star line, dead-talking continued."
Reaching is word with lots of meaning. Maruhkati used it to Break Dragon. Mnemoli visits Nirn every untime, including Dragon Breaks. This is bit from where is started to think dai as Mnemoli, earlier i thought it as some sort of Walking way but that was flawed idea. Virtual star line points to Serpent, invisible constellation ready to eat some of other constellations. I believe 'Named it cunningly' means that Tsaesci-Gods took form of Serpent.
'First Serpents returned to us in transmissions' means that they sent Jills (remember it's not Akatosh we are talking but primordial form of it), which Tsaesci-gods ate as well and received immortality. Why they were sent? Because Mnemoli told Tsaesci-gods secret which by Vehk is met with 'the teeth-filled stare of the Alinor Dragon that comes thereafter'
'Past the star line, dead-talking continued' points out that once Mnemoli departed from Nirn things remained as they were, current Kalpa proceeded it's intended path.
"The Laying then happened, and we moved into forms that had been granted from the source information of the first serpents, which was gold-walking, which is pattern. The scales became intertwined in the random sequence with music that ate forever, which we fed with you. Low forms created a seeking egg but we fed it to the music, too. Then the Biter-Shedding grew sideways into the reception field and knew a Coiling and mastery was ours borne from the calculations. The final name was Tsaescence and we ate it to become it and there are no more variations."
First two sentences are (not surpprisingly) rather difficult to understand, but i shall try. Basically Tsaesci-Gods made wheel (presumably by biting their own tails in snake form), much like Ayleids made wheel inside wheel. Which formed a I (sideways Wheel). Very Vehkian.
'The scales became intertwined in the random sequence with music that ate forever, which we fed with you. Low forms created a seeking egg but we fed it to the music, too.' This is odd case and pretty much piece of text which remains total mystery to me.but i shall try: Scales = Tsaesci-Gods(?), Random Sequence = Lorkhan, Music = Moons. Low Forms = Mortals/Elves?, seeking egg = Dracochrysalic? Based on this Tsaesci-Gods became one with Lorkhan who retained his flesh (=moons) which Elves tried to batle with their dracochrysalises but lost, i hesitate to use word Elves here as this might have happened in previous Kalpa, yet somehow it seems fitting.
As for final sentence: They saw the Secret Tower, I, CHIM. Happy ending.
Anyways: This is my misinterpretation. And i can't claim that it would be flawless. Heck it could be utterly wrong.